Wednesday, February 22, 2023

Union Budget 2023 Amendments will have Devastating Effects on Trusts and Charities”: Experts*

  In an event held in Mumbai experts and philanthropists weigh in on the issue and solutions

- The association will also give a white paper with 250+ signatures of various trusts and institutions to the relevant central authorities 


As many as 250 various public, charitable trusts and non-profit institutions, on Monday, gathered in order to discuss implications of Finance Bill 2023 on charitable institutions and other such not-for-profit organisations. The institutions, will submit a white paper with signatures of NGO representatives to the central government urging them to revise and reconsider its stance.Spearheaded by Association for Protection of Public Trusts and Charities, the institutions also offered solutions to the amendments currently made in the Finance Bill 2023.Under the Finance Bill 2023, it is proposed that if one charitable organisation donates to another charitable organisation, only 85 per cent of such donations given will be considered as application of income for the donor charitable organisation. In other words if Trust A donates a sum of Rs. 100,000/- to Trust B, in the books of account of Trust A Rs. 100,000 will be reflected as charity given, however only Rs. 85,000/- will qualify as ‘application of income for charitable purpose’.Institutions believe this will prove to be a major setback for purely grant-making organisations including corporate foundations and intermediary organisations which work with implementing agencies at the grassroots level. Noshir Dadrawala, CEO, Centre for Advancement of Philanthropy (CAP), said the amendments proposed are detrimental to thousands of charitable institutions across the country. "While there is a visible ease of doing business, there should also be ease of doing charity. This is the change that is needed. The charitable organisations only supplement government's effort in the welfare and development space," he added. Viren Merchant, noted Chartered Accountant, while seconding their opinion, said, “The proposed amendments are discouraging charitable foundation and philanthropic institutions to do good work and reach the last mile. Disallowing 15% of the expenditure, if donations are made to another charitable organization clearly means suffocating small charities of funds and curbing its resources and networks.”Similarly, it is proposed that application out of corpus or a loan before April 1, 2021 shall not to be allowed as application for charitable or religious purposes even when such amount is put back into corpus or the loan is repaid. It is argued that this is in order to avoid double tax deduction. Further, deduction shall be allowed only if the amount taken from the corpus is put back into corpus or the loan is repaid within five years from application out of the corpus or loan.“In our opinion it would be wrong to assume that in every case, expenditure out of loans/borrowings prior to 01.04.2021 has been claimed as application of income U/s 11(1).” said senior advocate Mr Firoze Andhyarujina.

Moreover, expenditures which are on capital account and on the basis of which a capital asset is created may not generate income and hence the repayment within 5 years would lead to enormous practical difficulties. The term loans of the banks are payable over a period of 15-20 years. The repayment of borrowings from commercial banks prior to 01.04.2021 shall be severely affected as no trust shall be able to claim the repayment of such loans as application. Term loans for social projects needs a repayment period of a very long tenure such proposed short term of 5 years will lead to reduction in social projects by charitable trust and affect overall charitable work in the nation. Suggestions from the Association:-

We suggest that this proposed amendment should be repealed OR if required, the same be modified so that deduction u/s 11(1) on donations given to other trusts be restricted to the extent of eighty-five per cent of the amount which is lower of a) such amount credited or paid to other funds/trusts OR b) such amount received from other fund or trust or institution.We would like to propose that a clarification should be inserted that if expenditure out of the loans or borrowings (received prior to 01.04.2021) is not claimed as application of income then the amendment as proposed would not apply.Further the window of five years for repayment is harsh and unrealistic. It should be extended to at least 20 years, if not more.

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